Three Misunderstood Things

I. The Masterpiece Cakeshop case (which the Supreme Court will hear in the fall).

What’s misunderstood about it: People think it has free-speech implications.

What more people should know: The baker objected to the whole idea of making a wedding cake for two men, and cut off the conversation before the design of the cake was ever discussed. That makes it a discrimination case, not a freedom-of-speech case.

Marjorie Silva, owner of Azucar Bakery in Denver, said she told the man, Bill Jack of the Denver suburb of Castle Rock, that she wouldn’t fill his order last March for two cakes in the shape of the Bible, to be decorated with phrases like “God hates gays” and an image of two men holding hands with an “X” on top.

Is this cake gay or straight?

But the Colorado Civil Rights Commission ruled against Jack, because the two cases are very different: Silva objected to the message Jack wanted on the cake, not to anything about Jack himself or the situation in which the cake would be served. If the government had demanded that Silva make that cake, it would have been an example of forced speech, which there is already a long legal history against.

Do conservatives also have a right to refuse forced speech? Yes. A Kentucky court recently ruled in favor of a print-shop that refused to make t-shirts for a gay-pride festival.

So liberals must have howled in rage, right? Not me, and not philosopher John Corvino, who defended the Kentucky decision on the liberal news site Slate:

the print shop owners are not merely being asked to provide something that they normally sell (T-shirts; cakes), but also to write a message that they reject. We should defend their right to refuse on free-speech grounds, even while we support anti-discrimination laws as applied to cases like Masterpiece Cakeshop. … Free speech includes the freedom to express wrong and even morally repugnant beliefs; it also includes the freedom for the rest of us not to assist with such expression.

The reason the baker has lost at every stage so far — the administrative court and state appeals court ruled against him, and the Colorado Supreme Court refused to hear his appeal, letting the lower court ruling stand — is that he wasn’t objecting to putting some particular message or symbol on the cake, like a marriage-equality slogan or a rainbow flag. For all he knew when he refused, the men might have wanted a cake identical to one he had already made for some opposite-sex couple. In short, he objected to them, not to the cake they wanted.

Corvino explains:

One might object that Masterpiece Cakeshop is similar: “Same-sex wedding cakes” are simply not something they sell. But wedding cakes are not differentiated that way; a “gay wedding cake” is not a thing. Same-sex wedding cakes are generally chosen from the same catalogs as “straight” wedding cakes, with the same options for designs, frosting, fillings and so forth. It might be different if Masterpiece had said “We won’t provide a cake with two brides or two grooms on top; we don’t sell those to anyone.” But what they said, in fact, was that they wouldn’t sell any cakes for same-sex weddings. That’s sexual orientation discrimination.

II. Mitch McConnell’s agenda.

What’s misunderstand about it: If the Senate is stuck on its ObamaCare replacement, why can’t it move on to the next items on the Republican agenda: tax reform and the budget?

What more people should know: McConnell is trying to exploit a loophole in Senate rules. As soon as a new budget resolution passes, his ability to pass both TrumpCare and tax reform goes away — unless he changes the proposals to get Democratic votes.

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During the Obama years, we often heard that “it takes 60 votes to get anything done in the Senate”, as if filibusters that can only be broken with 60-vote cloture motions were in the Constitution somewhere, and the minority party had always filibustered everything. (That’s why even the weakest gun-control bills failed, despite 54-46 votes in their favor.) But the Senate recognized a long time ago that budgets have to get passed somehow, and so the Budget Control Act of 1974 established an arcane process called “reconciliation” that circumvents the filibuster in very limited circumstances.

That’s how the Senate’s 52 Republicans can hope to pass bills without talking to the Democrats at all. But there’s a problem: Reconciliation is a once-a-year silver bullet. Fox Business explains:

Reconciliation allows Congress to consider just three items per fiscal year, whether they pertain to one bill or multiple. Those items are spending, revenue and debt limit. Since the GOP also wants to pass its tax reform agenda using reconciliation, it cannot statutorily do that under this budget blueprint because the two policy measures overlap.

The budget resolution for the current fiscal year dictates that any reconciliation measure must reduce the deficit, which the GOP’s Obamacare repeal was designed to do. Republicans then could draft a new budget resolution for the upcoming fiscal year with easier deficit targets, allowing for more aggressive tax cuts.

Under the most commonly accepted interpretation of the reconciliation rules, as soon as Congress passes a budget resolution for Fiscal Year 2018 (which begins this October), the window for passing TrumpCare under the FY 2017 resolution closes. So the only way to get them both done before facing another election campaign is to do them in the right order: first TrumpCare, then a new budget resolution, then tax reform.

Otherwise, McConnell’s options become less appealing: He can get rid of the filibuster completely, which several Republican senators don’t support. He can scrap either TrumpCare or tax reform for the foreseeable future. Or he can start envisioning the kinds of proposals that might get eight Democratic votes, plus a few to make up for Republican defections.

III. The minimum wage.

What’s misunderstood about it: Both supporters and critics of an much-higher minimum wage think they know what effect it will have on jobs.

What more people should understand: The effect of a minimum-wage increase on jobs is an empirical issue, not something you can deduce from first principles. And the data we have only covers small increases.

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There is a certain kind of conservative who thinks he learned everything he needs to know about this issue in Econ 101: Every commodity, including unskilled labor, has a demand curve; if you raise its price, demand for it falls.

The right response to that analysis is maybe. Imagine that you own a shop with one machine, run by your sole employee. The machine produces some high-profit item. To make things simple, let’s ignore counterfeiting laws and imagine that the machine prints money. Cheap paper and ink go in, $100 bills come out.

Obviously, you could afford to pay your employee a lot more than the $7.25-per-hour federal minimum wage. But you don’t, because the machine is simple to operate and you could easily replace him, so he doesn’t have any bargaining leverage.

Now what happens if the minimum wage goes up to $15? Do you fire your guy and shut the machine down? Do you abandon your plan to buy another machine and hire a second worker? No, of course not.

Admittedly, that’s an extreme example, but it points out the right issues: Whether an increase in the minimum wage causes you to employ fewer people depends on how much you’re making off those people’s work. If you have a razor-thin profit margin, maybe a higher wage makes the whole operation unprofitable and you lay workers off. But if you could actually afford the higher wage, and the only reason you don’t pay it already is that your workers lack bargaining leverage, then you don’t.

In fact, if a minimum-wage increase gives your customers more money to spend on whatever you make, then you might have to hire more people to meet the demand.

Which situation is more typical? One reason to think the second situation is, is that sometime in the 1970s wages stopped tracking productivity: Workers have been producing more, but not getting comparable pay raises, presumably because they lack the bargaining power to demand them.

During the same era, the minimum wage has not kept pace with inflation. An increase to around $11 would just get it back to where it was in 1968. If it wasn’t causing massive unemployment then, why would it now?

But there’s a problem on that side, too: Past hikes haven’t been nearly as big as the proposal to go from $7.25 to $15. I was a minimum-wage worker myself in the 1970s when it increased from $1.60 to $1.80. I suspect my employer was not greatly inconvenienced. But larger increases might have a shock value that makes an employer say, “We can’t afford all these workers.”

That’s why the new data coming in from Seattle is so important: Seattle was one of the first cities to adopt a much-higher minimum wage, so we’re just beginning to see the results of that. The headlines on that initial study were that the higher wage is costing jobs, but that early conclusion is still debatable.

So in spite of my own preference for a higher minimum wage, I find myself in agreement with minimum-wage skeptic economist Adam Ozimek: This is an empirical question, and both sides should maintain more humility until we see more definitive data.

Comments

A further question about your example of the machine that prints money and minimum wage is:

At what point is it more profitable for the owner to buy a machine that doesn’t need a worker to print the money? Will increasing the minimum wage lead us closer to that problem of employment?

If so, should we have a basic income? Should minimum wage be a living wage for those that can work and we’ll write off automation until some later date (which may be sooner than we’d like)?

I’m all for increasing the minimum wage to keep up with inflation, but I worry that we will see a point in the not too distant future where the wage to employ someone is high enough that owners may just buy a machine that would do the job anyway. Then we need to decide what to do with the people who are now unemployed and can’t get a job (lack of skills? inability to move? etc.).

Those are good questions, and also come up on this blog from time to time. Ultimately, I think we will need a basic income, but we’ll have to change a lot of our social assumptions and habits to make that work.

We own a bike shop and the minimum wage in our California city went from $10.50 to $12 on July 1, and is going to $15 by Jan 2019; voter approved. With a ~30% GPM, that’s a big increase. I hope not to have to let anyone go because I would really like to pay as well as I can, but those are scary numbers.

Have you looked into improving the Earned Income Tax Credit as alternative to major increases into the Minimum Wage? It’s politically tougher because it increases government spending. But, it strikes me as a more rational and fair system.

The other complicating factor in determining the effect of minimum wage increases is how it will affect jobs further “up the scale” as it were. For example, I know of a call center in a rural area which pays $11 an hour, because while they are low wage they don’t want to be minimum wage. If minimum wage is raised to $15/hour they will have to raise their pay, but how much? If they increase only to $15 then they are minimum wage employers, but how much more can they increase it before it hurts their bottom line.

I have a friend who owns a rental business (tables, chairs, event tents, bounce houses, large power tools, etc.) and he also pays a little over minimum wage for the sake of attracting and keeping unskilled but reliable workers. I made the same point about his competitors also having to increase wages and that they would all increase prices to compensate. My friend thinks the higher prices will result in people renting less stuff and less often. I think he’s probably overestimating how much less, but like the article says, this is an empirical question. It will largely depend on things like whether families are already maxing out their backyard graduation party budgets, or how badly a contractor wants to avoid storage and maintenance for his own jackhammer vs periodically renting one. These are very concrete factors, not theoretical at all.

I would think an economist would be able to study the industry and answer that question. But this brings up another point – is a national, across-the-board minimum wage, like what we have now, only higher, the correct approach? $15 in rural Mississippi is pretty good, but it’s starvation wages in Manhattan or San Francisco. A better solution would be a locally appropriate minimum wage to account for these regional differences, and given your friend’s observations, maybe an industry or occupation-specific one as well, similar to what already exists under the Davis-Bacon or Service Contract Acts for federal construction projects and services.

Also, making $15 per hour won’t help much if you’re only working 20 hours per week. A true minimum wage that guaranteed a basic standard of living would be an annual rate, not an hourly one.

I’m not sure where you might want folks to make suggestions for this column. I’d like to see the term “job creator” discussed. Another one is the idea of government control — e.g., does “government” paying for Medicare and other health care equal control (versus regulations, say, on what an insurance policy must cover, mandatory disclosure, etc.). A third is the idea of a “market” as in let the “market” solve the problem. If one looks at the components of a “perfect” market in micro-economic terms, there are precious few “markets” out there. A fourth is the idea of an economic stimulus (think Keynesian and could be connected to the job creator discussion). A fifth is government, especially Federal, deficit and its purpose which could also be part of number four. I’ll stop there. I like this format as I think there are so many misunderstood concepts and terms out there.

One of the daunting aspects of picturing this as a regular feature is whether I can come up with three good topics week after week. I appreciate suggestions, and the comment thread is a good place for them. Thanks.

An issue I think a lot of people on both sides are getting wrong is where sexism/racism/etc. intersect with statistical facts about demographics. For example, the average scores on certain quantitative/mathy standardized tests are a little bit higher for men than for women. How does that relate to the fact that my industry, software engineering, has a 10:1 ratio of men to women? Why is it still wrong to discriminate against female software engineers despite these statistics? There are good liberal answers to these questions, and then there are very bad liberal answers, (and VERY bad conservative answers,) and a lot of the confusion comes down to people not understanding what statistics and averages really mean.

On the topic of sexism in techy fields, I know someone who worked as a programmer for forty years. thirty as a male and the last ten as a female. There are lots of stories of how badly women are treated in the field. All true. Programming is also extremely ageist.

What I would like to mention is this –
When McDonalds hires a low income worker, that worker usually requires governmental assistance. That assistance is paid for by the US taxpayer. What impact would a higher wage have on the tax burden of the US taxpayer? Or would the cost of goods increase to negate any benefit? Why does a for-profit company need US taxpayer help when they are already getting the majority of the tax breaks via corporate welfare?

On a side note – we could always have a 0% unemployment rate by going the way of slavery. however, then, we have issues such as the French revolution where the people who were overtaxed and abused revolted.

[…] Another gay cake debacle? Seriously? Have you noticed how it’s only the entirely superfluous, whimsical consumer desires of the wealthy that get this kind of attention? It’s never about, say, a trans woman who has been fired from her job and needs to prostitute to buy food. […]

[…] safe in their parents’ basements indulge in horror movies. Someone might try to force me to sell a gay couple the same cake I would sell a straight couple! Or to provide health insurance for my employees! It’s just exactly like the stoning of […]

[…] case (in which a baker refused to sell a same-sex couple a wedding cake) on December 5. I’ve previously given my opinion on this case: I think the baker should lose, because it’s a discrimination […]